Unifi MF introduces Unifi Dynamic Asset Allocation Fund for inflation-beating returns; what are dynamic asset allocation funds?

Unifi Mutual Fund has unveiled its latest offering, the Unifi Dynamic Asset Allocation Fund, which aims to provide investors with returns that outpace inflation over varying economic cycles. The new fund is designed for those seeking low volatility and inflation-beating returns, with an investment horizon of two years or more. The New Fund Offer (NFO) opened on March 3, 2025, and will close on March 7, with the scheme reopening for further subscriptions on 21st March 2025. 

The scheme caters to investors seeking stable, inflation-beating returns with low volatility over a two-year investment horizon, as stated in a release from the fund house. The approach involves investing in a varied mix of debt, equity, and arbitrage instruments to achieve steady returns while minimizing volatility and downside risks. The investment strategy will be actively managed, with dynamic allocation between debt and equity to capitalize on income and capital appreciation opportunities.

V N Saravanan, Chief Investment Officer at Unifi Mutual Fund, highlighted the fund's management approach. He said: "The fund management team has complete discretion to allocate 0% to 100% across various segments of debt and equity in any proportion. The flexibility shall be used consciously to limit downside across economic cycles while striving to achieve consistent real returns over inflation." This strategy allows for dynamic asset allocation, enabling the fund to shift investment between debt and equity according to changes in the economic climate. 

The fund's structure allows investors to remain passive, mitigating the need to actively adjust their portfolios in response to economic fluctuations. It uses a flexible allocation strategy influenced by near to mid-term outlooks on growth and inflation. The fund's ability to pivot among different segments of debt and equity makes it a versatile tool for investors looking to navigate economic uncertainties without unnecessary risk. 

According to Saravanan, the fund considers four primary economic cycles: Rising Growth-Falling Inflation, Rising Growth-Rising Inflation, Falling Growth-Rising Inflation, and Falling Growth-Falling Inflation. He noted that "the empirically low volatile segments like Government securities, AAA bonds, hedged equity and special situations arbitrage would have a fair chunk of allocation in all economic cycles." Credits and diversified equity will be evaluated based on growth projections, with allocations adjusted as economic conditions shift.

“Broadly there could be 4 cycles – Rising Growth-Falling Inflation; Rising Growth-Rising Inflation; Falling Growth-Rising Inflation; Falling Growth-Falling Inflation. The empirically low volatile segments like Government securities, AAA bonds, hedged equity and special situations arbitrage would have a fair chunk of allocation in all economic cycles,” Saravanan said.

Traditional investment options have not always provided the same flexibility, often forcing investors into riskier or less liquid assets. Unifi's new fund aims to bridge this gap by offering a more adaptable investment strategy that can adjust to changing economic landscapes. As markets evolve, Unifi’s Dynamic Asset Allocation Fund presents a potentially innovative solution for investors to achieve their financial goals while managing inflation and market volatility effectively. 

Dynamic Asset Allocation Fund 

Dynamic asset allocation funds are a type of balanced or hybrid fund that invests across various sectors, including equity funds, real estate, stocks, and bonds. During times of market slowdown or economic downturn, these funds serve as a valuable resource for all consumers, regardless of their risk tolerance.

Amidst volatile market conditions where investors seek to minimise risks and generate decent returns, dynamic asset allocation funds have become increasingly popular among retail investors. These funds can provide fund managers with the flexibility to adjust the debt-equity ratio in the portfolio, allowing them to respond effectively to sudden market changes.